Digital economy to India

Trends and opportunities

The market

The Indian iformation Technology (IT) industry is forecast to reach US$71 billion by 2016, ahead of Australia’s US$59 billion and behind the US at US$2.3 trillion (Source: Gartner).

The dominant Indian IT companies, Tata Consulting Services, Infosys, HCL, Tech Mahindra and Wipro, continue to employ strategies that shift their position from offering clients cost-saving business process outsourcing (BPO) services to developing and offering value-added innovative solutions.

Driving this shift is the price pressure on BPO services, along with a shrinking market size due to the trend of global companies to set up their own BPO service centres, often in India. For example, global consulting firm Deloitte with 225,400 employees, does the majority of its back office service operations in India. Smaller scale examples of Australian companies following this trend are Telstra and ANZ Bank which both have sizeable back office operations in Mumbai and Bangalore. Evidence of this downward price pressure was seen in the losses reported in July 2016 through the Indian stock exchange which featured top Indian IT companies.

Vishal Sikka, CEO of Infosys (India’s second largest IT organisation by revenue), sees this trend as a downward spiral for the Indian IT industry. He believes that the only way for the industry to survive is to transform itself towards innovation through projects and services where software and automation delivered by the company, improves the productivity and frees up people to deliver innovation. An example of where Indian IT companies are responding to this changing market condition, is the focus they are placing on the potential revenue stream presented by social, mobile, analytics, and cloud (SMAC) technologies. By 2020, the value of the global SMAC industry will be close to US$1 trillion. In response to this revenue opportunity, India IT companies are investing an average of US$1.6 billion annually, skilling-up their SMAC teams and investing directly in SMAC technologies through co-innovation funds or direct mergers and acquisitions.

Some examples of Indian Corporate VC funds include:

  • Infosys Innovation Fund valued at US$500 million. In the past two years, Infosys spent US$390 million acquiring three firms, including Panaya, an automation technology provider, Skava, a digital commerce firm and Noah Consulting
  • Wipro Ventures, is a US$100 million venture capital fund
  • Tech Mahindra has a US$150 million Growth Factories Fund
  • HCL Technologies’ parent company floated a US$500 million health tech fund to evaluate US based health technologies
  • Persistent Venture Fund invests between US$100,000 - 250,000. Persistent Systems invested in DxNow, a privately held Boston company that is developing advanced micro-fluidic and imaging technologies for point-of-care diagnostic solutions; and Hyginex, California-based start-up, focused on preventing hospital acquired infections, through a sensor equipped bracelet that alerts and reminds hospital staff to wash their hands.

In addition to funds, Indian IT corporates also have dedicated centres of excellence, tech hubs and programmes to identify and foster innovation.

A leading example is TCS’s Co-Innovation Network (COIN), a global network of start-ups, venture capitalists, strategic alliance partners, academics, government and trade bodies, clients and TCS industry experts. COIN provides TCS’ clients with access to emerging technologies, an environment for sophisticated IT research in disruptive innovation across sectors and industries. In August 2015, TCS conducted a technology competition in Australia to access niche technologies in automation, robotics and cybersecurity for addressing global supply chain gaps. Australian internet security company, Cryptophoto, won the competition and benefited from the opportunity of joint pitching sessions with TCS for its US based clients.

Another example is the Global Technology Office of Cognizant that tracks technology trends and in 2014 invested in Odecee, a Melbourne’s mobile solutions company.

Opportunities

The opportunity for Australian technology companies is to form strategic partnerships to access funds, scale-up, accelerate, co-innovate or undertake joint research and development.

Indian IT export revenue in 2015 was 62 per cent to the United States (US), 17 per cent to United Kingdom (UK) and 11 per cent to Europe excluding the UK (Source: India Brand Equity Foundation). The Indian IT industry is an attractive market for Australian technology companies which are:

  • seeking capital for innovation growth
  • a pathway to global value chains and international markets, particularly the lucrative US and European markets.

Specific areas

Cybersecurity

Opportunities exist for Australian cyber security organisations providing ready-to-commercialise or commercial technology, innovative technology under R&D and training providers. Specifically, solutions in application security, threat intelligence, identity and access management, governance, risk and compliance, managed security services, cyber defence, data security and security solutions in areas of Internet of Things and smart cities are of interest. Key factors driving demand for technologies and training are cyber security revenue forecast, cyber threat, skill shortage of cyber professionals and successful delivery of Digital India initiative.

Cyber security revenue potential is currently estimated at approximately US$2.5-3 billion or two per cent of the US$150 billion Indian IT sector and forecasted to reach US$35 billion or 10 per cent of the US$350 billion Indian IT sector in 2025. Upskilling of one million workforce is estimated to be take place by 2025. With cyber threat incidents skyrocketing, there was a 117 per cent increase in detected information security incidents in India (globally, this figure is 39 per cent) and a 71 per cent boost in security budgets in 2015. Security budgets have seen a CAGR of 25 per cent over the past five years. India’s peak IT industry association, NASSCOM, has established a Cyber Security Task Force to position India as a global hub for cybersecurity solutions, develop a R&D plan and develop a skilled workforce or next generation of cyber professionals to support seamless delivery of Digital India initiative. 

Fintech

Opportunities exist for Australian organisations offering solutions in three areas - payments and remittances, Process improvement and customer engagement. Key factors driving demand include financial services industry being the highest global revenue churner  (approximately 41 per cent) for Indian IT organisations, the revenue potential of fintech software in India (estimated to double from US$1.2 billion to US$2.4 billion by 2020), growing smartphone penetration (117 million Indians using smartphones and over 160 million connected to the internet), an evolving e-commerce system with growing customer expectations, government initiatives such as financial inclusion of rural India as outlined in the Pradhan Mantri Jan-Dhan Yojana (PMJDY) and unique identification system for Indian citizens based on biometrics - Aadhaar.

Highlighting the funding potential, fintech investment in India, with about 250 start-ups, rose from US$247 million in 2014 to US$1.5 billion in 2015 and 11 venture capital backed deals worth US$57 million. In addition to Indian IT organisations, target segment for Australian organisations to collaborate with include VC firms, Indian private sector banks and financial institutions. Indian private sector banks and other financial institutions are acquiring or investing in fintech start-ups and also fostering/investing in fintech ecosystems. Venture Capital firms are early stage investors in fintech businesses (Source: India Brand Equity Foundation, NASSCOM and KPMG reports).

Internet of Things (IoT) and related disruptive technologies

Opportunities exist for Australian organisations offering IoT solutions for application areas like agriculture, automobile, energy, environment, telecom, transport, urban planning, healthcare and consumer IoT. Key factors driving demand include Indian government initiatives - Digital India, Smart Cities Mission (budget of US$18 billion, covering 100 smart cities in five years) and IoT being perceived by Indian IT organisations as the next big avenue to expand portfolios and enter new markets (global market opportunity of US$300 billion of which India will be US$15 billion and over 27 billion connected devices by 2020 globally).

Indian IT vendors are expected to generate US$225billion of the US$1trillion global opportunity from Social, Mobile, Analytics, Cloud (SMAC) by 2020. Indian IT organisations are already investing and forging partnerships to acquire newer capabilities in IoT. Examples are Tata Consultancy Services’ IoT Centre of Excellence in Hyderabad - South India, HCL Technologies’ collaboration with IBM to design applications for remote monitoring, smart inventory management and smart buildings and Tech Mahindra’s partnership with Silicon Valley based Aeris Communications and Dutch company, Tomtom. The Indian Government’s Department of Electronics and IT and NASSCOM have established The Centre of Excellence for IoT to develop innovative applications, strengthen IoT ecosystem and enable India realise the revenue benefits from global and Indian IoT opportunities (Source: Indian Brand Equity Foundation, IBT, Gartner).

Education and training

Opportunities exist for Australian organisations offering targeted courses for upskilling in Social, Mobile, Analytics, Cloud (SMAC) and related areas. India being the world’s largest IT talent pool (approximately 5.8 million people and 35-37 per cent of global market share), increasing growth in share of digitally skilled employees (20,000 in 2010 to 1,500,000 in 2015), increase in number of employees working in SMAC areas (five-10 per cent of employees are working on digital technologies including over 50,000 employees with analytics experience and over 50,000 employee with cloud skills), increasing need for diverse skill sets and vertical specialists driving greater internal hiring and the global revenue potential of US$1 trillion for SMAC by 2020 is driving investment in upskilling (Source: BMR, Venture Intelligence and NASSCOM).

Competitive environment

Indian industry has a strong track record of engaging with international players to access the latest innovations in technology, R&D and training to improve their top line and compete globally. The Israelis, US and Europeans are already reaping benefits of engaging with Indian organisations to access Indian and global market opportunities.

Examples of engagements between Indian and international organisations and benefits include:

  • Queensland based next generation multifactor authentication company, Cryptophoto’s partnership opportunity with TCS that will add substantial impetus to CryptoPhoto’s pitch to businesses and push the technology closer to commercialisation.
  • Israeli P2P lending platform provider, eLoan, is a part of an accelerator run by India’s largest private sector organisation, Reliance Industries, called Gen Next Innovation Hub. There is potential for eLoan to receive 20-40 per cent equity and Reliance could integrate this technology in multiple digital platforms created by the company.
  • US based Udacity is offering nanodegree certification programme online for students who want to join Infosys. The company has also announced partnerships with US based online education firms such as Coursera, and EdX.
  • Infosys entered a new strategic partnership with Queen’s University Belfast’s Centre for Secure Information Technologies. The partnership establishes a research, education and commercialisation model, to develop solutions and intellectual property for combatting cyber security threats arising out of the rise of digital and cloud-based business models.
  • EdgeVerve Systems, the product subsidiary of Infosys, announced intentions create a dedicated product-centric fintech R&D centre that will create 95 jobs in the 1st year and 250 new jobs over the next three years. The centre will operate an open innovation model, working closely with customers, technology partners, academic institutions and the start-up community in areas of technology, such as block chain and analytics.
  • British and Indian Prime Ministers agreeing to work collaboratively to institute a cyber security training centre in India.

Pathways to engage for accessing market opportunities

Australian research institutions and technology - attract Indian investment into Australia’s innovation development - R&D strengths and commercialisation potential.

Australian research and innovation hubs / centres - create linkages with Indian business, universities, research bodies and government.

Australian ICT exporters - there is strong demand for niche applications in India for the domestic market. There is potential to develop strategic alliances with India’s IT majors to support international customers and markets. There is also an opportunity to participate in Indian private bank and industry led accelerator programs for exploring India market opportunities. Examples include Zone Startups India, Gen Next Hub, Yes Bank CoE for fintech start ups

Australian VET providers - Participate in digital upskilling of Indian IT sector by partnering with learning and development divisions of Indian IT organisations.

Links and industry contacts

Digital India programme
Ministry of Electronics and Information Technology
The National Association of Software and Services Companies (NASSCOM)
Smart Cities Mission

Contact details

The Australian Trade and Investment Commission – Austrade – contributes to Australia's economic prosperity by helping Australian businesses, education institutions, tourism operators, governments and citizens as they:

  • develop international markets
  • win productive foreign direct investment
  • promote international education
  • strengthen Australia's tourism industry
  • seek consular and passport services.

Working in partnership with Australian state and territory governments, Austrade provides information and advice that can help Australian companies reduce the time, cost and risk of exporting. We also administer the Export Market Development Grant Scheme and offer a range of services to Australian exporters in growth and emerging markets.

Sources